Finding the Right Price

I had 3 discussions last week with different types of people regarding appropriate fees, and came up with 1 conclusion.

You’re not charging enough.

The logic works as follows:

You want to earn $100,000 per year.

You think you can get 1000 billable hours.

Your hourly rate is therefore $100.

If you actually try charging $100 per hour, you’ll find that you’re overcharging for some work (basic PHP programming is not worth more than about $50 or $60 per hour), and undercharging for other work (needs analysis and process refinements and automation can easily be billed at $200 per hour or more).

If you try to average the fees and charge something in the middle, you’ll end up with the following situation:

People who need PHP programming don’t hire you because you charge too much for that.

People who need process refinements and automation also don’t hire you, because you charge too little.

What, someone won’t hire you because you charge too little?

But that’s exactly the problem. If you do work that other people charge two or three times your rate, then clients think they’re not getting the same quality from you as from your competitors. So they don’t hire you, not because they can’t afford you, but because they think you’re not as good at your job as your competition is.

The solution, of course, is to raise your rates. The catch, however, is that you won’t get people hiring you for the basic work, which you may need to reach your income requirements. So you do what I’ve just done – you split your fees.

Split fees

When you split your fees, you need to be careful not to give a quote too early in the process. The way I do it is by starting at my higher fee, and then working my way down. If a client wants to hire me by the hour, it will be pretty expensive, because the only fee I’ll quote up front is my higher rate.

When I look at the work, though, I have 2 fees – one for the work that the client is contacting me for, and one for the work that anyone could do, but it will probably be me. For example, if a client needs to determine how to automate a particular task, they come to me to figure out how to automate it. I will likely also be implementing that, but really, once they know the solution, they can hire a programmer for a fraction of my price to do that work.

To get that work as well, I offer to arrange for the implementation, and pass on the savings to the client. I may outsource the work, or I may do it myself. In any case, the price quoted will be competitive for the work being done. In the previous example, if the work could be done by a programmer charging $35 per hour, I’ll bill it at $40-$50 per hour. Whether or not I actually subcontract it depends on the type of work and whether or not I have time to do it myself.

From the client’s perspective, they’re only paying the premium rate for the specialty work I do. Using me as a go-between to various contractors helps ensure that the job is done properly, and they know that if my contractor makes a mistake, I’ll make sure it gets fixed.

Pricing is something that’s very difficult to get perfect – don’t charge enough, and you’ll need to work more to earn enough, charge too much, and you won’t be able to get clients. But if you can strike the right balance, you’ll have it made.